Topic: Debt Does Matter, and Why Cryptocurrencies Have to Go up (Read 435 times)

The important issue is not whether a loan will benefit the economy.  It is: who should have the power to decide if a loan will benefit the economy?  If credit is a free market, then anyone who invests in a bad loan will pay the price.  Credit will naturally go to projects that make things people want, ie grow the economy.

What we have today is that central banks artificially cheapen the price of credit, so anyone who doesn't take out a loan is missing cheap goodies.  No wonder, people borrow too much and waste it away.

This is similar to the argument for democracy.  The important issue is not whether this or that law is good policy.  It is that we get to choose our leaders.  If they make bad laws, we have the power to replace them.  There must be a 'free market' in politics.

There's a difference between printing dollars and issuing federal debt, but in practice I don't think the US can ever afford to let federal debt be less than 100% money, in modern times.  If the US elites ever abandoned the debt to protect the dollar, I think the level of economic and social pain would just not be sustainable in today's world.

The $20 trillion of US national debt today is only a fraction of the real debt, if you count all the future spending the federal government is obligated by current law (e.g. old age benefits called Social Security.)  These laws of course can be changed, but that is politically painful and will likely just shift (if not magnify) US weakness into other areas.

You can't postpone doom forever.

True, it was a disaster for the US in the 1960s and early 70s when Western European governments redeemed their dollar reserves for gold at the fixed price of $35/ounce.  And there was no way to 'regime-change' those countries under the circumstances.

Most people use the word realpolitik as if it was a mode of behavior that the elites sometimes get into.  Realpolitik is all there is.  Any top politician who diverges from realpolitik is at a disadvantage.  The book "Confessions of An Economic Hit Man" is a great read and has a list of leaders from around the world, over the years, (Iran, Panama, Guatemala, Chile, etc.) who paid the price by following their conscience and offending Washington.

Wrong,

During Fiscal Year 2014, the Bureau of Engraving and Printing delivered approximately 6.6 billion notes to the Federal Reserve, producing approximately 24.8 million notes a day with a face value of approximately $560 million.

The U.S. dollar is the most widely used currency in the world today. No wonder the printing presses at the U.S. bureau of Engraving and Printing in Washington, D.C. run 24 hours a day! All the nation's paper money is printed in Washinton, D.C. In 24 hours, the bureau can print ten million one dollar bills.

There are about U.S. $1.2 trillion floating around the globe. ^WoW^

This is obviously different as what you asked in there, but it has some coincidences too.
You are talking about the debt, and a lot of people who are in here doesn't even know the incredible debt that the united states has.

They are printing about 160 million dollars aproximately a DAY.

This is why bitcoin needs to improve much more, so it can replace it.

I don't particularly disagree about the leverage part because ultimately, this is what realpolitik is all about, economics attached. No one in their right mind will deny that Washington has a lot of leverage on Germany. The long list of US military bases in this country speaks for itself and louder than any words.

With that said, I still have to note that the leverage we are talking about is not absolute. For example, the US leverage on France is definitely smaller than on Germany. But that means that even in case of the latter, Washington may not be given a free pass on anything they are looking for. There is always some leeway which can leave enough room for top European politicians to act on their own.

Absolutely agreed.  Fractional reserve banking is one example of how the state-bank elites use state power to prop up the values of financial assets artificially, to benefit themselves who issue most of them.

When banks are allowed to lend out part of the deposits, it helps to expand the money supply, and to support the values of government bonds, private debt, stocks, real estate, etc. directly or indirectly.

I believe the effect of Bitcoin will very generally be restraining the financial instability of the last few decades since the end of Bretton Woods in 1971 (i.e. the end of the last vestiges of the gold standard.)  When cryptocurrencies are firmly established in the public mind, the elites will have a new motto, that governments and central banks will have to rein in their profligacy in order for their currencies to compete with cryptos.

This will in effect be a return (or partial return) to the gold and silver standards, even if the public-facing narrative will sound completely different.  Gold and silver standards have been around for centuries during the modern era, compared to the few decades of 'fiat money' which have also been among the most unstable periods.  (But they won't make the mistake of anything like announcing 'gold is money and currency is debt,' which painted them into a corner when they, inevitably, ran out of gold.)

Nothing in this world, at the top level, works according to idealism.  If you believe top European politicians have the long term future of Europe in mind (which I'm sure is what they claim publicly is the reason for allowing refugees in,) bless you heart for your optimism, but I don't agree.

Instead, everything works according to leverage.  Washington has leverage on every country in the world, which is why no country has used gold and silver as money or base money, even though it would be best for their countries. (Instead, the dollar functions almost exactly like gold in the past -- and only Washington can print it.)  Whatever leverage the US elites had on Merkel, it was strong enough to make her pay the political cost.

Sorry, the main point of my original post was that owing money to each other is a problem, even if 'net' debt is zero since 'we owe to each other.'

And this is because, after someone gets too deeply in debt, the creditors fear a debt default (refusal/inability to pay back.)  This causes creditors to cut back spending, and the result of falling economic activity will spread across the economy.

This is especially true when so much of the economy consists of unnecessary/luxury goods and services -- the very things that grow under the state-bank elites' usually inflationary policies (to give themselves unearned wealth.)

The problem started with Fractional-reserve banking practices. Banks accepts deposits, makes loans or investments, but is required to hold reserves equal to only a fraction of its deposit liabilities. Reserves are held as currency in the bank, or as balances in the bank's accounts at the central bank.

These loans are meant to fuel the economy, but it is used to pay for worthless/depreciating assets or expensive Holidays.

Bitcoin cannot change the system, but it has the characteristics to force people to change their behaviour. < Bitcoin will encourage people to hoard their coins, cultivating a saving culture. >

But the European politicians are already sacrificing their political capital when they are succumbing to orders from Washington which seems to be your point. If they didn't want that they would choose to resist the pressure from over the Atlantic, right? So what difference does it make at the end of the day? Could it be that you underestimate them when you basically say they are shortsighted and look only for short-term popularity among the masses?

Could it be that they are actually trying to solve the long-term population issues?

I like your analysis because its something one could easily relate to but at some point, I got confused which is at the point when it got to the situation where Mr B had to continue to gather more debt in other to live at least for the basic things of life while the other man gets richer meaning that he does not spend his own money. But looking at the origin of exchange, it was not about money it was about goods and for Mr B to have bought something from Mr A, it then means Mr A has some value which he must have spent his own dollar to Mr B to acquire which means in my own analysis, they are both owing each other but as times goes on, and other factors sets in, one begins to owe more than the other.

This is what we see today that United States is owing China, while China is owing the United States and when we then total the world debt, we then ask who are we going to pay it to, of course not some people in Mars or Jupiter but ourselves which is why I wont totally agree to your school of thought on that part.

This may be true, but I was looking at short term issues only.  You don't think European politicians would sacrifice any political capital to solve the long term population issues, do you?

The truth is that there's no way on earth that allowing refugees in is politically popular in Europe.  So why is it happening?  So you have to look to the US-led empire for a possible explanation.

The real issue is, what determines how much lending takes place, and to whom?  Who makes the determination, the market, or the state-bank elites?

In the modern era, the Western state-bank elites have always used state power to distort the credit market, to benefit themselves.  This has resulted in all the major problems we see in the world today.

If credit markets were free, bad credit risks would naturally fail to get credit, and credit would naturally go to productive projects.  Because lenders suffer when they lend to an unproductive borrower.

It shouldn't be up to the elites, us, or anyone to determine where credit should go.  It should be up to the free market.

Sorry but currencies are not backed by gold since 1980-1981. Wanna know what happened then? See the graph posted by @BillyBobZorton and check the 80's
I agree totally to say the problem is the elite in the finance who are fucking us for a loooong time. They a full control of the economic power and now are looking for the political power since 1-2 decades

In case of a financial reset, cryptocurrencies will be their best bet

I definitely support this view from an economic point of view. But for a government the debt may be a good thing that allows them to control the population, at least as long as the debt is manageable for the indebted. And when it becomes too burdensome, the sweet government may kindly step in and write it off. So how debt can be bad to them?


I think it goes beyond that. Europe is on the verge of depopulation, while local folks want to neither work nor procreate. Refugees may be a solution to this problem. Actually, to two problems.

You had your original $1, plus the $1 I spent to buy from you (i.e. $1 in excess of what you bought from me.)  So you had $2 in cash.  (This example is not as extreme as it sounds.  The majority of our money exists not as banknotes but as deposits in the banking system, available for credit.)

There is no earthly reason why Europe should want to take Syrian and Iraqi refugees.  The only explanation that makes sense to me is that the US wants to use the quantity of the influx of refugees as leverage against top European politicians.  (I read that George Soros' non-profit organizations were involved in promoting the influx.)  Another tool for maintaining the empire's power.

The refugee influx solved at least two problems at once, from the US perspective.  They diverted pressure and attention away from the suffering in Syria from a war that was basically started and maintained by the US deep state to punish Assad for disobeying the empire.  And as I mentioned, they were a method to keep EU politicians in line.

In his example he first spend his own dollar which means you have your dollar and the dollar from him that is the way you can borrow him 2 dollars, he is demonstrating how money is multiplied by banks in this example the money is multiplied by 2 but it is known that with fractional reserve banking and banking dollars banks are able to create about 10 dollars for every dollar they receive.

His model is actually even easier and more confusing than your explanation (question?).


How could you borrow $2 from me when all I had was $1?  


Putting the above aside I agree with your view of the world economy. It's obviously turning into shit as we speak. The EU is destroying itself from the inside by voting for sanctions against countries that refused to take migrants and this is in the time when the EU needs those countries to sustain itself economically after the brexit. They are shooting themselves in the leg.
The current situation in the EU is that of a family that had just gone through a divorce and has trouble paying rent, but they take in a bunch of stray dogs that need to be fed and taken care of and is threatening to kick their children out if they don't start taking care of the dogs... One word: nuthouse.

Debt is not necessary a bad thing, the issue is how many people go into debt to try to create a business or something productive? Very few, most of the debt people carry are on luxurious items they could not afford otherwise, that expensive car or that big house or those expensive clothes, credit should only be given for the creation of new wealth and not for the consumption of wealth or the collapse of that economy is guaranteed.

Right, there is high finance too, with its mountain of derivative bets worth more than can be bailed out by the entire world economy when things go wrong.  I hope I'm assuming with good reason that this can eventually be taken care of by unwinding and inflating away the positions.  Still, some pain will likely be in store for the major investment banks, (even if mitigated by secretly buying cryptos) and that might be why Jamie Dimon doesn't like Bitcoin.

It won't be difficult at all for the banks to order an unwinding of the positions from the top down; the rationale for doing so will be obvious.

Part of what I tried to do, in focusing on the real economy and 'real credit,' is to showcase what really happens on the ground, i.e. the distortions and instability that come from elite control of money and other core financial assets (and how Bitcoin may be the best thing that happened to the elites in modern history.)

The insane amount of debt out there is obviously not some guy wanting to start their own restaurant/tangible business, but the excesssess of the insanity of high finance which end up creating trillonaire (soon quadrillonaire? is this even a word) debt that will never be paid.

Naturally, newer generations will look at Bitcoin as a new asset class to hedge against this impeding doom.



Bitcoin is just a reaction to that, and that is the real bubble.

Sorry if this is confusing.  Both people spend money all the time.  It's just that, what I buy from you is balanced by what you buy from me, except for the deficit and credit parts.

So, when I 'spent all my $1', what really happened was that I spent $1.2 to buy from you, and you spent $0.20 to buy from me.

Debt default (refusing/being unable to repay a loan) is covered by the model.  In fact, the main reason you cut back spending when I'm too deep in debt is that you're afraid I might default.

This is absolutely what I believe too.

The catch is that the global banking elite will generally find a big country with decent rights and freedoms, and ally with that country to create the next global empire, by promoting the financial assets issued by that country and painting that country as a 'city on a hill.'  The 'free' wealth and power enjoyed by that country will eventually doom it to decline in all ways.

They did that with the Netherlands, Britain, and the US, in that order.  They are looking to do it 'to' India next.

As long as they still want to keep the US bubble afloat, they'll have to strip away freedoms and rights mainly in secret.  This creates secrets which can get exposed, and which will threaten imperial reputation and soft power.

But if they put in a good fix at the deep monetary level, the manipulation is well-hidden, there will be no need for any heavy-handedness, and the empire can appear to 99.9% of the public as a free and open society.  They were able to do this with the international gold standard, starting in the 1870s, and cryptocurrencies give them an opportunity to do it today without the embarrassment of devaluing against gold.


Don't worry, I often sound that way too.

This is a pretty strange model.In your model only you spends money,the other person just saves his dollar and gives it as a loan to you and you spend it again.How come the other person doesn`t spent his dollar for anything.He has the same needs as you-food,water,clothes...
I guess that your model is wrong.There are better ways to explain the debt economy,you should learn more about the market economy and finance.
You forgot about another scenario in your model.What if you bankrupt and refuse to return the loan to the other person?

That's another good breakdown for you. One facet which might be worth focusing on is potential for destruction of wealth, productivity, innovation and time. Money and cashflow could represent these four paradigms. Money that doesn't exist is being burned at record rates with future generations left to pick up what may be an insurmountable bill. The wealth rich(er) nations enjoy could be directly correlated with rights and freedoms they have.

It is possible destruction of wealth parallels destruction of rights and freedom. Having a strong middle class and a high(er) average riches lends political influence. In countries where average wealth is high politicians, governments and the private sector are forced to listen to the opinion of the people. If that wealth were to be destroyed, that could eliminate one of the primary reasons anyone in power has to take us seriously.

I'm sorry to always err on the side of negative analysis and worst case scenarios btw but it could be a scenario worth considering.

Imagine a 2-person, 2-dollar economy.  I have a dollar, and you have a dollar.  The total amount of money in the economy is $2.

Now imagine, later, my net worth is -$1, and your net worth is $3, because I spent my $1, borrowed $2 from you and spent another $1, so you have $1 in cash plus $2 in IOU from me.  The 'net total money' in the economy is still $2, but we now find ourselves in a totally different world.  Why?

The reason is that you will start thinking, since I have financial problems now, I might still buy food from you, but I'll likely stop buying expensive clothes and fancy cars from you.  So you take a break when you would normally be making these luxury items.  (In the real world, this means unemployment.)

When I see that you're producing and earning less, I know you'll stop having gourmet meals at my restaurant and staying at my resort.  As I plan to close down these operations, you'll know that my income will be reduced, and wonder if I'll ever be able to pay back the principal and interest of what I owe you.

You cut back even more.  The entire economy is trapped in a low-demand, low-activity, deflationary mode.  (And the media are trapped in a mode of telling us everything is OK!)

This is essentially where the world economy is today.  If enough people voted for Brexit and Trump (as they also voted against the establishment in Italy, France, and Germany,) we have big-enough economic problems.

Now, since I seem to blame all the problems on debt, you might ask, isn't it true that debt was what allowed both of us to feel richer, and justified my opening a gourmet restaurant and your investing in luxury car production?  Ultimately, debt is the engine of investment and higher living standards.

That is all true, but we need to ask ourselves, what kind of debt?  Is the debt truly free-market, or are the values of IOUs artificially propped by state-bank elites who benefit from issuing and underwriting the debt?  It is the latter kind of debt that allowed me to borrow $2 after I've spent all of my $1, that eventually created too many luxury items in the economy whose demand can collapse at any time.

But, that's where we are.

The elites' solution to the problem of global debt will be to generate enough inflation to wipe out the real value of the debt.  If we have a $10 economy now, that $2 debt becomes a small problem.  Unless they absolutely have to, they won't want to get inflation by throwing money from helicopters or devaluing their currencies against gold.  Those would tend to expose their system.

Bitcoin and other cryptocurrencies will become extremely convenient to the elites in this way.  They will allow these to go up (while buying up a lot for future control of the system,) and say, if people like cryptocurrencies, what can we do?

Directly or indirectly, inflation will come, and savers in cash and debt based assets will see a large portion of their real wealth wiped out.  Since the world system is fundamentally promise-breaking, we can't be surprised that those who suffer most are people who have the most trust in the system.